In the aftermath of the economic crisis, Harvard Business School Professor Michael Porter co-wrote an article in the Harvard Business Review that urged U.S. corporations to dramatically rethink how they serve the needs of their customers and communities.
As he explained, too many companies were offering products and services that were good for making money, but not necessarily good for their customers or their reputations. In banking, those were products like interest-only loans or checking accounts that were advertised as free but raked in overdraft fees.
In the article, published in January 2011, Porter said that a corporation's purpose needs to be redefined around a concept he called "shared value." The idea is that all initiatives whether products the company sells, nonprofits it supports or procurement practices should create value in some way for customers, employees, shareholders and the community.
"If everything you do and every product you sell is really focused on bettering the community, that is the most powerful way to affect your reputation" and your bottom line Porter says, in a recent interview.
Grayson Hall, the chairman and chief executive at Regions Financial, is a believer.
Hall first became familiar with the shared value concept in 2010 when he met Porter at a Harvard workshop for newly minted corporate CEOs and he quickly adopted it as a blueprint for Regions' recovery from the financial crisis.
At the time, Regions was still reeling from losses on soured real estate loans. Its stock was in the single digits and its reputation was sullied by allegations that management had falsified the company's financials to mask problem loans and revelations that former CEO Dowd Ritter had been using the corporate jet for personal travel which looked all the worse because Regions had taken money from the Troubled Asset Relief Program. Investment guru Jim Cramer declared that he wouldn't touch Regions' stock "with a 10-foot pole" as long as Ritter was in charge.
Today, Regions' profits are once again at pre-crisis levels, its capital is strong and its reputation among customers has greatly improved, based on data compiled for American Banker by the Reputation Institute. Regions vaulted to the top of our annual reputation rankings in 2015, with a score of 83.26 on a 100-point scale. A score above 80 is considered "excellent."
Credit Hall, who recognized when he moved up from senior executive vice president of operations to CEO that, along with cleaning up the company's credit problems, he needed to strengthen its image. Encouraging more viewpoints was central to that goal, so one of his first major decisions upon replacing Ritter was increasing the size of his executive leadership team from seven members to 16.
Under Hall, the $122 billion-asset Regions has redoubled efforts to improve service and strengthen relationships, diligently measuring its progress through customer feedback and employee engagement surveys. It has launched a series of products and services aimed at the unbanked with a goal of moving those consumers into mainstream banking products. And it has immersed itself in its communities as never before, even creating an office of corporate social responsibility to oversee its myriad efforts.
"It's really simple: do the right thing every day, in every decision and with every customer interaction," Hall said in explaining shared value at a London investor conference in May. "Regions' associates embrace the idea of staying focused on serving customers and making a positive difference in the communities where we work, play and live. And if we help our customers, associates and communities succeed, then our shareholders will benefit. This is our primary focus as we build a stronger, more sustainable business."
Chris Marinac, managing principal and director of research at FIG Partners in Atlanta, says that during the boom years, many banks were more concerned with maximizing profits and boosting share price than treating customers fairly. That changed after the financial crisis, and Marinac says Regions has done an especially good job balancing demands from regulators and investors with the needs of customers and employees.
"They've had to rethink how they do business because they know the regulatory environment is going to be like this for a while," Marinac says. "They know these are the new rules of the road."
Marinac sums up Regions' response as, "'Let's do it, and let's do it right.'"
There have been missteps. In April, Regions was fined $7.5 million by the Consumer Financial Protection Bureau for charging overdraft fees to customers who had not opted in for overdraft coverage and misrepresented the terms of its payday-like loans.
But Regions caught the errors itself and reported them to the CFPB. It has reimbursed $49 million to customers who were improperly charged overdraft fees and has agreed to continue the reimbursements until customers are made whole. The company also stopped offering its payday-like loans more than a year ago and has committed to stop processing checking account transactions from high to low, a practice often criticized because it can trigger more overdraft fees.
"We'll never get to the point where we make no mistakes," Hall says, in an interview. "But when we make them, we need to recognize them. We need to correct them and continue to build a deeper level of trust with our customers so that they know we are committed to doing the right thing."
Hall incorporated the term "shared value" into the company's mission statement and spent the early months of his tenure traveling to Regions' markets throughout the country spreading its message. In keeping with the customer-comes-first message, Regions changed a question on its customer surveys from "the employee was knowledgeable about products and services" to "the employee asked about my needs."
Rick Swagler, Regions' head of external affairs, says that the focus on doing what's right for the customer, not meeting sales goals, has energized the workforce.
Regions has been working with Gallup Consulting since 2012 to measure engagement among its more than 24,000 employees in annual surveys. Though he declined to share specific results, Swagler says that the number of "actively engaged" employees has increased in the past three years while the number of "actively disengaged" employees fell sharply. This year, Regions was one of 40 Gallup clients worldwide to receive a "Great Workplace Award," which is given for high levels of employee engagement.
"This is the way bankers want to interact with customers," Swagler says. "They don't want to be selling whatever product is hot that week; they want to figure out what customers want to accomplish and what products and services we have that can help them reach their objectives."
The engagement levels likely are bolstered by the unique ways Regions celebrates its employees. Each month, for example, the bank gives out a "Better Life Award" to an employee who shows outstanding dedication to the job and who made an important contribution to the community. The award comes with a $1,000 donation to the employee's nonprofit of choice. A five-minute video clip of the employee in action is posted on YouTube.
A Culture of Education
One thing Regions had going for it when Hall took over as CEO was its strong brand. The green bicycle it had been using in its marketing since its 2006 merger with cross-town rival AmSouth think "banking is as easy as riding a bike" depicted an image of approachability, and even today it is seen as one of the company's most effective marketing tools.
On the product front, Regions is one of the few mainstream banks that offers check cashing, prepaid cards, remittances and expedited bill-pay services to people who don't have bank accounts. It began offering the services in 2011, and though it earns money on the fees, the main goal is to help those consumers get comfortable enough with the banking system that they'll eventually open checking or savings accounts. Roughly 40% of these previously unbanked customers have gone on to open accounts at Regions, according to spokeswoman Evelyn Mitchell.
Regions also has stepped up its community involvement through its "doing more" campaign, which launched in 2013. Financial education is at the forefront of the campaign. For example, Regions has long had a banking relationship with the American Cancer Society in its markets, but it recently expanded the relationship by offering financial workshops to cancer patients and their caregivers.
Kelly Doss, an executive vice president for the nonprofit, says that even for people with good health insurance, a cancer diagnosis can be financially crippling. Many patients are out of work while they undergo treatment and all those hospital trips especially when they are out of state add up.
Regions held its first workshop at a Cancer Society facility in its hometown of Birmingham, Ala., in May, offering tips on managing household expenses and dealing with creditors. It plans to roll out the program in other cities over the next several months. "Regions has done a great job of providing real and relevant information on what patients and caregivers can do to manage their situations," Doss says. "There's no selling. You really feel they did this in the best interests of the cancer patient."
Among its many other educational commitments, Regions is also working with the nonprofit Operation Hope to set up financial counseling centers in its branches. The first was in Birmingham and a second recently opened in a branch in Jennings, Mo., near Ferguson. That's temporary, though. Regions is building a new branch in Jennings that will give more space and more visibility to the counseling center, called "Hope Inside."
"Building a completely new branch and putting a prominent location for us in it says everything about its transformation as an organization" under Hall, says John Bryant, Operation Hope's CEO.
Regions executives recognize the importance of sharing its stories, so they recently set up a corporate advocacy unit whose mission is to promote the company's activities in its communities. One story on its news site, for example, focuses on a Birmingham middle school where Regions funded after-school programs in music, art, languages and other disciplines. Another story celebrates Regions' "What a Difference a Day Makes" campaign in which nonprofits compete for a grand prize of $5,000 and 100 volunteer hours from employees.
Lajuana Bradford, Regions' head of corporate social responsibility, says the stories are written in such a way that they celebrate the recipients, not the company. The hope is that organizations Regions helps will go on to become advocates for the company, she says.
Harvard's Porter says such active community involvement is a key component of creating shared value and enhancing a company's image. "Just giving money to a worthy cause is not the way you move the needle on reputation," he says.
Regions is clearly moving the needle. A year ago, it was No. 6 in the reputation rankings, and two years ago, No. 19. The company showed particularly strong improvement in the areas of ethics and citizenship this year, gains that the Reputation Institute's Rob Jekielek attributed in large part to its community initiatives.
The good news for investors who generally are concerned with numbers like expense control and loan growth, not something as intangible as reputation is that Regions' business is improving along with its culture. Loan and deposit balances continue to grow steadily and, perhaps more importantly, the company is deepening customer relationships. Last year, for example, 33% of mortgage customers who previously had no relationship with Regions opened a checking account. That's up from 21% in 2013. Also, the number of customers with at least four products is on pace to increase between 4% and 6% this year.
"Regions has done a great job making sure the customer is happy," says FIG Partners' Marinac. "Sometimes people in the investment community think they are the only ones that matter, but the fact is the customers are more important than anyone in the equation. It's the customer who pays the bills."